Explain three merits of public deposits

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#1

Public deposits are raised by business organisations directly from the public. These deposits usually offer a high rate of interest. This source fulfils the medium as well as short-term finance requirements of the business.Merits:

  1. The procedure of obtaining deposits is simple and does not contain restrictive conditions as in case of a loan agreement.
  2. Cost of public deposits is generally lower than the cost of borrowings from banks and financial institutions.
  3. Public deposits do not usually create any charge on the assets of the company. The asset can be used as security for raising loans from other sources.
    Demerits:
  4. New companies generally find it difficult to raise funds through public deposits.
  5. It is an unreliable source of finance as the public may not respond when the company needs funds.
  6. Collection of public deposits may prove difficult, particularly when the size of deposits required is large.